Brad really. First as you note allll the time the dividend yield should be r-g where g is the expected growth rate of dividends. Krugmans theory is that safe r is low because expected growth is low. That naturally translates to low g. Second, the r in the equation you love above all other equations, is a risk adjusted required rate of return, not the safe r. You position is that the equity premium is unusually high, but here it is important to decide if we want to measure the risk premium as r/rsafe or r-rsafe. As I recall (in one of my most terrifying memories) you could prove it should be r -rsafe in your head while writing 60 words a minute. That's what theory suggests for constant risk.
R-rsafe ( as we both like to stress) is normally huge. Something like 0.05 with rsafe around 2 and g around 2.5 to 3. rsafe is now about 0 so a perfectly ordinary equity premium correspons to growth of 0.5 to 1. Very low, but you have noticed that Krugman is very pessimistic. Expected g of 2.5 should imply a dividend yield of about 0.025 . I just looked it up and found an S&P 2011 yield alleged to be 0.019. But the newish normal for the 21st century seems to be less than I had guessed -- 0.04 to 0.045 but rather 0.3 to 0.35 so my new guess is it should have been 0.01 or 0.015 not 0.025 and I have a big big anomaly of 0.04 to 0.09 to explain. This is a series which has varied from 0.03 to 0.08.
I really see almost no puzzle for Krugman at all.
Also, as always, I suggest looking at corporate bond rates. Nominal corporate bond rates are low. Differentials with Treasuries are higher than in say 2006 but lower than in 2003 (except for total junk). The differentials are tiny miniscule and microscopic compared to late 2008 and early 2009. The current malaise looks very different from the omigod the world is ending months. Your analysis is quite similar.
I am getting bored agreeing with Krugman all the time. I do note that I have been arguing against the shortage of safe assets hypothesis for over a year right here in comments on this blog ( one of which you kindly pulled back to the blog).